Annual Financial Report

RNS Number : 3358L

JPMorgan Indian Invest Trust PLC

21 December 2018

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN INDIAN INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 30TH SEPTEMBER 2018

Legal Entity Identifier: 549300OHW8R1C2WBYK02

Information disclosed in accordance with DTR 4.1.3

CHAIRMAN'S STATEMENT

Results

The year to 30th September 2018 was a positive one for Indian investors, as measured by the Company's benchmark index, the MSCI India Index (in sterling terms), which returned +4.0%. Unfortunately, the Company's performance fell well short of the index, producing a return on net assets of -7.7% over the year. The return to shareholders was worse, at -10.9%, reflecting a widening of the discount over the year from 11.4% to 14.5%. The widening of the discount on our shares is consistent with our competitors.

It is always disappointing to report underperformance. As I have stated previously, the Board judges performance over the longer term and recent underperformance means that the Company has now underperformed the benchmark over three and ten years. However, it remains ahead over five years.

As you would expect, the Board has discussed with the Investment Managers the reasons for the Company's underperformance in great detail and in their report below, they set out the key factors affecting the portfolio's performance as well as the Indian economy and equity market over the financial year and give their view of the prospects for the future.

Performance attribution analysis of the performance of our portfolio over the year and shows that our decisions on sectoral weightings (described as 'asset allocation') were by far the most significant contributors to underperformance. Not holding Reliance Industries (energy), Infosys (information technology) and Hindustan Unilever (consumer staples) cost us nearly 7% of performance against the index and our overweight positions in the auto and cement sectors were also significantly unhelpful. Beneath all this, our portfolio has been constructed to take advantage of a cyclical upswing in the Indian economy which the Investment Managers have expected but which has yet to manifest itself.

Tax

As I reported at the half year stage, the India-Mauritius tax treaty was amended in 2016 and the advantages of investing in India via Mauritius, whereby gains made on investments held for less than 12 months were not subject to capital gains tax, have been removed with effect from 2019. Having taken professional advice on this matter, the Board had planned that the Company would cease investing via its Mauritius subsidiary and transfer its assets to the UK parent company during the course of this financial year. However, the Indian government announced in its February 2018 budget the introduction of a 10% capital gains tax on realised gains from investments held for more than 12 months. Investments made before February 2018 are, however, protected from this charge and as a result it remains advantageous for the Company to hold its historic investments through the Mauritius subsidiary. The Board now envisages that the assets will move to the UK parent company over a period of years, as proceeds from sales made in the normal course of portfolio management are transferred from the subsidiary to the parent and then reinvested by the parent. This process is now underway as can be seen from the list of investments in the annual report.

IFRS 10

As I explained last year, an amendment to International Financial Reporting Standard 10 ('IFRS 10') came into effect for reporting periods beginning on or after 1st January 2016. The financial statements of the Company contained in the Annual Report have been prepared in accordance with the amended IFRS 10. This is explained in note 2(c) to the financial statements, informing shareholders that the financial statements do not consolidate our Mauritian subsidiary. As shareholders know, this subsidiary holds most of our investment portfolio and therefore is the entity which pays almost 96% of the fee to JPMorgan for managing the Company's assets. The total fee paid by the Company and its subsidiary was £7.8 million.

As a consequence of the non-consolidation of the Mauritian subsidiary's financial statements, it is the Board's view that these financial statements do not disclose the full cost of operating the enterprise or the total level of our liabilities. Therefore, we have again sought to provide shareholders with a fuller picture of the combined operations of the Company and its subsidiary during the year and their combined financial position as at 30th September 2018 by including in note 22 to the financial statements supplemental information and reconciliations to the statutory financial statements, i.e. figures which are comparable to those which have been reported in years prior to 2017. Unlike last year, these are now within the notes to the financial statements and therefore are audited by PricewaterhouseCoopers. The Board believes this treatment is preferable and urges shareholders to consider these figures if they want to judge how the Company has performed this year, alongside the statutory financial statements.

Gearing

During the year, the Company had in place a three year floating rate £100 million loan facility with Scotiabank to provide the Investment Managers with the flexibility to gear the portfolio when they believe it is appropriate. In August this year the facility expired and was renewed for a further two years. At the end of the financial year £18 million was drawn by the Mauritian subsidiary and the portfolio was 0.3% geared (at the group level).

The Board

In accordance with corporate governance best practice, an evaluation of the Board and its committees was undertaken during the year. The evaluation confirmed that there is an appropriate mix of skills and experience on the Board and that the Directors work together effectively. Consequently, all Directors will stand for reappointment at the forthcoming Annual General Meeting ('AGM'). We are aware of the forthcoming changes to be implemented by the revised UK Corporate Governance Code and, in due course, we will look to appoint a new Director in order to ensure orderly succession planning and continuity.

Investment Manager

The Board has reviewed the investment management, company secretarial, sales and marketing services provided to the Company by JPMorgan Funds ('JPMF'). This annual review included the performance record, management processes, investment style, resources and risk control mechanisms. Notwithstanding the significant underperformance in the last financial year, the Board was satisfied with the results of the review and therefore in the opinion of the Directors, the continuing appointment of JPMF for the provision of these services, on the terms agreed, is in the best interests of shareholders as a whole.

Share Issues and Repurchases

At the AGM held in February 2018 shareholders renewed the Directors' authority to repurchase up to 14.99% of the Company's shares for cancellation or into Treasury. The Company repurchased a total of 712,675 shares into Treasury during the year and as at the date of this report there is a total of 21,042,646 shares held in Treasury. The Board believes that such a facility is an important tool in the management of discount volatility and is, therefore, seeking approval from shareholders to renew the authority to repurchase the Company's shares at the forthcoming AGM.

Shareholders also granted the Directors authority to issue new ordinary shares. At various times in the past, the Company's shares have traded at a premium to net asset value ('NAV'), which has enabled the issue of new shares. The Board has established guidelines relating to the issue of shares and if these conditions are met, this authority will be utilised to enhance the Company's NAV per share and therefore benefit existing shareholders.

To supplement this authority, the Board will reissue shares from Treasury when appropriate. Issuing shares out of Treasury would be cheaper than issuing new shares since it avoids the necessity of the Company paying listing fees to the London Stock Exchange and the UK Listing Authority. The Board will only buy back shares at a discount to their prevailing NAV and issue new shares, or reissue Treasury shares, when they trade at a premium to their NAV, so as not to prejudice continuing shareholders.

Continuation of the Company

In accordance with the Company's articles of association, an ordinary resolution will be put to shareholders at the forthcoming AGM that the Company continue in existence as an investment trust for a further five year period. If the resolution is not passed, the Company's articles of association require that the Directors shall within four months of the AGM convene a General Meeting of the Company at which a special resolution will be proposed, designed to result in the holders of shares in the Company receiving, in lieu of their shares, units in a unit trust scheme (or equivalent) or in the reorganisation of the Company's share capital in some other manner or which shall be a resolution requiring the Company to be wound up voluntarily. The Board believes that the long term outlook for India remains positive and that JPMAM has the resources and investment process to deliver returns for shareholders. Accordingly, the Board believes that the continuation of the Company is in the best interests of all shareholders and strongly recommends that shareholders vote in favour of the resolution, as they intend to do in respect of their own holdings.

In November 2013, the Board announced that it planned to introduce an obligation on the Board to make a tender offer to shareholders at NAV less costs if, over the three years from 1st October 2013, the Company underperformed its benchmark. Over the three years to 30th September 2016, the Company significantly outperformed its benchmark index and therefore no such tender offer was made. However, the Board renewed its commitment to shareholders by undertaking to offer a tender for up to 25% of the issued share capital, at NAV less costs, should the Company underperform the benchmark index over the three years to 30th September 2019.

Annual General Meeting

This year's AGM will be held at JPMorgan's office at 60 Victoria Embankment, London EC4Y 0JP on Wednesday, 30th January 2019 at 12.30 p.m. As in previous years, in addition to the formal part of the meeting, there will be a presentation from one of the Investment Managers, who will answer questions on the Company's portfolio and performance. There will also be an opportunity to meet the Board and representatives of JPMorgan.

As we have done at previous AGMs, in order to prevent overcrowding, entry will be restricted to shareholders only and guests will not be admitted to the meeting.

Outlook

My years in the investment world have taught me that forecasting the outlook for equity markets is an impossible task. Looking ahead, I have usually found it much easier to foresee problems than opportunities, particularly at the macro level, and there is certainly no shortage of such problems as 2018 draws to a close. However, despite its great challenges, India is a country enjoying rapid (even if inadequate) growth and has a stock market with a good choice of strong and successful companies which have excellent prospects for growth in sales and profits for many years ahead. Experience has taught me that it is much more rewarding to concentrate on such companies than try to make judgements about the broader economy or possible political developments.

In a year in which many developing countries have faced difficult challenges and poorly performing stock markets, India has performed relatively robustly, which gives me confidence that your Company's portfolio, which consists of the sort of companies I have described above, will perform well in the years ahead, despite the disappointing results which I have had to report to you on this occasion.

Richard Burns

Chairman

21st December 2018

INVESTMENT MANAGERS' REPORT

The year in review

A year ago, Indian stock market valuations were high and the outlook for equities was broadly positive, albeit with caveats. As well as a buoyant global economy, local factors (such as India's structural reform agenda) had contributed to a feeling of optimism for the year ahead. Now, after a year in which India's economy has continued to grow, the outlook is less certain. As well as domestic challenges which we will discuss later, last year's benign global investment landscape has become a distant memory since stock market volatility and investor unease have increased around the world as 2018 has unfolded.

Markets have been unsettled by economic and geopolitical worries this year. At the time of the Company's AGM in February this year, we referenced 'possible turbulence to absolute returns' because we were already aware of the difficulties the year could hold. Political instability affecting certain territories, rising US interest rates and oil prices recently hitting a 4-year high have been amongst concerns precipitating market corrections and a deterioration in sentiment. In fact, the Indian market had been one of the more robust Asian markets so far this year until a sharp correction in September pushed it back, partly because of negative news flow from India's financial sector.

This year's performance figures are very disappointing. While the market rose, the net asset value of the fund has declined. The Company's net asset value (NAV) return over the year to 30th September 2018 was -7.7%, underperforming its benchmark, the MSCI India Index, which rose by +4.0% (on a total return, net basis, in sterling terms).

In this report, we will review the year, providing commentary on some of the factors that have affected the Company's performance and explain why we remain upbeat about investing for the long term in one of the world's largest economies - driven by confidence in both its future growth potential and the quality of its companies.

Market Review: how India's mandate for reform is making a difference, but challenges remain

After years and years of India being known for its business bureaucracy, outdated and restrictive laws and poor infrastructure, the Indian government's reformist agenda is making a difference. It has been positive to see the government acting, including its fundamental structural reform to the economy.

Landmark reform The Goods and Service Tax (GST) Act came into effect on 1st July 2017. After considerable uncertainty and initial teething problems this comprehensive, indirect tax levied on the supply of goods and services is now being implemented smoothly. GST is a huge step forward, in our view, as it greatly simplifies India's taxation regime, with the potential to boost tax collection, enhance productivity and ultimately contribute towards economic growth over the medium to long-term.

Tackling bad debts In October 2017, the Indian government announced plans to recapitalise its Public Sector Banks (PSBs) which had been crippled by bad debts. The initial announcement triggered a sharp rally in relevant stocks at the time.

The recapitalisation is a positive development for the long-term health and governance of India's financial sector. However, the subsequent revelation of fraud involving Punjab National Bank (a PSB and the country's second largest lender) was a shock to the system and a stark reminder that governance standards at state-owned lenders remain inadequate. The scam, which involved over US$2 billion worth of fraudulent transactions, impacted sentiment.

The RBI has also been monitoring - and questioning - Chief Executive Officer (CEO) reappointments at several banks. As a direct result of RBI intervention, Axis Bank and ICICI have announced new CEOs and Yes Bank is poised to do so. A more hands-on regulator is forcing companies and management to take greater responsibility for their actions.

Addressing bad lending In another streamlining reform, The National Company Law Tribunal's fast track Insolvency and Bankruptcy Code process is now operational, replacing an array of often conflicting laws and targeting the bad lending and borrowing practices that have plagued India for decades. As well as the introduction of expedited timeframes there is now a centralised, national database that can be searched by potential creditors.

Work still to be done More recently (and acting as a reality check that reform is still a 'work in progress'), the government had to step in and take over an unlisted Non-Bank Finance Company (NBFC) IL&FS after it defaulted on loans. Whilst it became apparent that the highly leveraged infrastructure conglomerate had been poorly managed, the crisis has raised broader concerns over the state of the financial sector, particularly the NBFCs. It was systemically important for the government to step in to restore confidence.

Why the world's fastest growing large economy may not be growing fast enough India may be the world's fastest growing large economy (with economic growth of 8.2% for the three months to 30th June 2018) but there is still apprehension that its fiscal and current account deficits ('twin deficits') and a persistently high level of inflation will slow down the economy and further weaken the rupee which has already depreciated markedly. India's growth rate would be impressive anywhere else in the world, but the domestic consensus is that it is underwhelming - neither helping tax collections and the fiscal deficit nor corporate earnings growth which, in aggregate, is tracking below real Gross Domestic Product growth. While there are pockets of growth and opportunity, the much expected, broad-based recovery remains elusive.

Meanwhile, monetary conditions have tightened all round: the RBI hiked its short-term lending rate to 6.25% in June, reflecting its formal mandate to target inflation; the rising oil price and weak export growth have expanded the current account deficit, putting pressure on the rupee; and events in the financial sector (described above) have added to the liquidity squeeze. Collectively, these factors have exerted downward pressure on equity prices and valuations.

Spotlight on stocks and sectors

We look for superior 'all weather' growth stocks, compounders that can grow steadily over time, and which we hope to hold for long periods. Our portfolio is high conviction, research-based and relatively concentrated and our stock choices are not restricted by the Company's benchmark index. We believe that this process should produce good portfolio performance over the long term, whilst acknowledging that, this year, our stock choices have resulted in poor short-term performance in both absolute and relative terms.

The last 12 months have been a difficult period for us. The Index returns have been very narrow - and not owning three of the four big index heavyweight names that have made strong contributions (Reliance Industries, Infosys and Hindustan Unilever) hurt our relative performance; not holding those three stocks detracted by nearly 700 basis points. We chose not to hold those stocks on grounds of quality or valuation. On top of that, from a stock attribution standpoint, almost all the top 15 contributors in the Index are stocks that we do not own currently whilst many detractors are stocks that we do.

The Energy sector rose overall and our performance suffered from our lack of exposure to it. Although the aforementioned Reliance Industries' core businesses are in the energy industry, the stock's success was driven by its telecoms arm JIO. This new entrant to the mobile telephony space gained market share above market expectations. Although we felt the stock was too expensive at the time, not holding it has been undeniably painful for overall performance. However, we did benefit from our underweight position in other Telecommunications players caught up in mobile handset price wars, such as Bharti Airtel and Vodafone Idea.

Our underweight exposure to Information Technology stocks, and Infosys in particular, was another source of pain as IT is one of India's few export-driven sectors and benefitted from the weaker rupee. However, we forecast headwinds for the Indian IT outsourcing companies as new technologies result in general downward pressure on corporate tech spending. At Infosys we felt this was compounded by turmoil within the senior management team. Within the space we prefer Tata Consultancy Services (TCS).

More positively, our focus on quality within the Financials sector was vindicated. Stock selection was positive throughout the year. We have already commented on the speed bumps hit by parts of India's financial sector over the period. The term of YES Bank's CEO was unexpectedly cut short, with the RBI citing a weak governance and compliance culture at the bank. We benefited from not owning the stock. Conversely, companies such as HDFC, HDFC Bank and IndusInd Bank remain amongst our favoured Financials. Penetration rates of financial services in India remain low and provide great growth potential. The PSB bank recapitalisation notwithstanding, India's quality banks will continue gaining market share, for the benefit of the overall economy.

We also enjoyed some success within the small cap space: Jubilant Foodworks was the portfolio's top performer over the year. India's demand for fast food pizza remains substantially unmet; management has impressed by striking a balance between store rollout and bolstering the strength of the existing franchise.

Portfolio changes Transactions over the year included adding to our holding in construction conglomerate Larsen & Toubro as a potential beneficiary of economic recovery. We initiated a position in jeweller and luxury goods company Titan Industries, which offers high quality exposure to long-term consumption trends and we were able to buy the shares when the stock was weak.

We exited Tata Motors due to concerns about global demand, competition and Brexit. We also sold communications infrastructure provider Bharti Infratel due to revenue headwinds.

Although our stock selection process is bottom up, in that we focus on the attributes of individual companies, an underlying theme to the portfolio is that the investment cycle and earnings in India will recover. This has not occurred - yet. However, as a result, some stocks where the key investment argument is a cyclical recovery in earnings have suffered - examples include motorcycle and scooter manufacturers Bajaj Auto and Hero Motors, cement producers Ambuja and ACC, India's largest power generation equipment maker BHEL and industrial manufacturer Cummins. While the recovery in investment is taking longer to materialise than we had hoped, we believe the ingredients are there for sustainable, long-term growth in all these stocks and that this will be supported by India's ongoing structural reforms.

Gearing Given the current uncertainty and volatility, we are cautious on the immediate prospects for markets and have reduced the Group's gearing level from 7.4% as at the last year end to just 0.3% as at 30th September 2018.

Outlook

At face value, our portfolio - and the fact that we are not holding the majority of the short-term index performers - may raise concerns. However, our strategy is an established one and structurally the portfolio retains its focus on high quality, fundamentally attractive franchises; cyclically we continue to believe that the Indian economy is picking up momentum and we are positioned accordingly.

We have close contacts with the companies we hold in the portfolio as well as those we have identified for possible future inclusion. Also, we actively engage with the large companies that we choose not to hold, in order to review these businesses on a regular basis and understand the risks of avoiding them. On top of this, we dedicate considerable time to building our knowledge by meeting companies up and down the supply chain (such as suppliers and customers) as well as competitors and policy makers. We believe that our diligent analysis and research will drive up portfolio performance over the long-term.

Our recent meetings in Mumbai and Delhi have reinforced our confidence that corporate sales growth is recovering generally, despite short-term headwinds such as the weaker rupee and rising oil prices. There is evidence of some return of pricing power, plus an increase in overall capital expenditure. Strong rural demand is a recurring theme and factors such as crop insurance, better digital connectivity, reduced leakage in subsidies and an improving road infrastructure are all contributing to a more sustained, positive rural outlook.

Politically, we are in an important election cycle, with both state and general elections looming. While we will not even begin to make any political predictions on the prospects for the ruling Bharatiya Janata Party, volatility is to be expected. However, investors have witnessed many election cycles in India and strong and agile businesses can always benefit from a challenging environment by gaining market share.

For some time now, we have expressed our optimism for a recovery in the Indian economy, whilst acknowledging the bumpy trajectory of that recovery. We also recognise that while India is most certainly a growth market, it is not cheap. However, underpinned by India's reform programme and by progress made in financial inclusion, we see many investment opportunities ahead. Further, while the country's twin deficits remain a headwind, unlike some other prominent Asian markets, India is not sensitive to any intensification in protectionism. While some of the rhetoric is undoubtedly of concern, any escalation should have a smaller impact for India than for many other Asian economies - a hidden benefit of India's underdeveloped export sector.

Investors know that, despite its many challenges, the business environment in India is fundamentally robust and the investment opportunities compelling. There will always be volatility when investing in a single country, but we are confident that our approach will reward our investors over the long term. We have a sound and disciplined investment process, patience and cool nerves - plus an overriding commitment to deliver strong, long-term returns by investing in fundamentally attractive companies at a reasonable price.

Rukhshad Shroff, CFA

Rajendra Nair, CFA

Investment Managers

21st December 2018

Principal Risks

The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The risks identified and the ways in which they are managed or mitigated are summarised as follows.

With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company. In assessing risks and how they can be mitigated, the Board has given particular attention to those risks that might threaten viability. These key risks fall broadly under the following categories:

•   Investment and Strategy

An inappropriate investment strategy, or poor execution of that strategy, for example stock selection, asset allocation or the level of gearing, may lead to under-performance against the Company's benchmark index and competitor funds.

     The Board manages these risks by diversification of investments through its investment restrictions and guidelines which are monitored and reported by the Manager. JPMF also provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Managers, who attend all Board meetings, and review data which show statistical measures of the Company's risk profile.

     The Investment Managers employ gearing within a strategic range set by the Board.

•   Market

Market risk arises from uncertainty about the future prices of the Company's investments. It represents the potential loss that the Company might suffer through holding investments in the face of negative market movements. The Board monitors performance regularly as set out in the 'Investment Strategy' section above.

•   Legal and Regulatory

In order to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given under 'Business of the Company' above. Were the Company to breach Section 1158, it would lose its investment trust status and, as a consequence, gains within the Company's portfolio would be subject to Capital Gains Tax. The Section 1158 qualification criteria are continually monitored by the Manager and the results reported to the Board each month.

     The Company must also comply with the provisions of the Companies Act and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules and Disclosure Guidance and Transparency Rules ('DTRs'). A breach of the Companies Act could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules or DTRs could result in the Company's shares being suspended from listing which in turn would breach Section 1158.

     The Board relies on the services of its Company Secretary and its professional advisers to ensure compliance with the Companies Act and the UKLA Listing Rules and DTRs.

•   Taxation

Since the Company's launch in 1994, it has held the majority of its investments through its Mauritius based subsidiary company, thereby benefitting from the India/Mauritius Double Tax Treaty (the 'Treaty').

     The Board has stated previously that there could be no assurance that the Company's subsidiary would continue to qualify for or receive the benefits of the Treaty or that the terms of the Treaty would not be changed and, in May 2016 it was announced that the Treaty was to be amended. The advantages of investing in India via Mauritius, whereby gains made on investments held for less than 12 months are not currently subject to capital gains tax, will be removed as a result. Earlier this year, the Indian government announced the introduction of a 10% capital gains tax on realised gains from investments held for more than 12 months. However, investments made before January 2018 are protected from this charge and as a result it is advantageous for the Company to continue to hold its historic investments through the Mauritian company. The Board envisages that the assets will move to the UK parent company over the coming years, through natural trading. Our Investment Managers tend to hold investments for longer than 12 months and hence, in the normal course of business, it is not expected that the amendments to the Treaty will have a material effect on the Company.

•   Corporate Governance and Shareholder Relations

If the Company's share price lags the NAV by a significant level, this will result in lower returns to shareholders. The Board seeks to manage the volatility and absolute level of the discount by judicious use of its share repurchase authority, taking account of market conditions and its peer group discounts.

     Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Corporate Governance report within the annual report.

•   Operational, including Cyber Crime

Loss of key staff by the Manager, such as the Investment Managers, could affect the performance of the Company. In this respect the Board receives information on contingency and succession planning from JPMF. Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the Depositary's or Custodian's records could prevent accurate reporting and monitoring of the Company's financial position.

     Details of how the Board monitors the services provided by the Manager and its associates and the key elements designed to provide effective internal control are included in the Risk Management and Internal Control section of the Corporate Governance statement within the annual report.

     The threat of cyber attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security. The Board has received a summary of the cyber security policies of its key third party service providers and JPMF has confirmed that the Company benefits directly or indirectly from all elements of JPMorgan's Cyber Security programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and security of its trading applications are tested by independent review and reported on every six months against the Audit and Assurance Faculty ('AAF') standard.

     The risk of fraud or other control failures or weaknesses within the Manager or other service providers could result in losses to the Company. The Audit and Risk Committee receives independently audited reports on the Manager's and other service providers' internals controls, as well as a report from the Manager's Compliance function. The Company's management agreement obliges the Manager to report on the detection of fraud relating to the Company's investments and the Company is afforded protection through its various contracts with suppliers, including the Depositary's indemnification for loss or misappropriation of the parent Company's assets held in custody. The Company's Mauritian subsidiary company is not subject to the Alternative Investment Fund Managers Directive and therefore it has not appointed a depositary, but has its own custody agreement with similar indemnity provisions.

•   Financial

The financial risks faced by the Company include market price risk, currency risk, interest rate risk, liability risk, credit risk and borrowing default risk. Further details are disclosed in note 20 within the annual report. The Company has exposure to foreign currency as part of the risk reward profile inherent in a company that invests overseas. The income and capital value of the Company's investments are affected by exchange rate movements.

•   Political and Economic

The Company faces risks from possible policy changes including the imposition of restrictions on the free movement of capital.

Transaction with the Manager and related parties

Details of the Group and the subsidiary's transactions with the Manager and related parties are given in note 22 within the annual report.

Details of the management contract are set out in the Directors' Report within the annual report. The management fee payable to the Manager for the year was £145,000 (2017: £177,000) of which £nil (2017: £nil) was outstanding in the financial statements at the year end. In addition £20,000 (2017: £113,000) was payable to the Manager for the administration of savings scheme products of which £17,000 (2017: £56,000) was outstanding in Company's financial statements at the year end.

Included in other administration expenses in note 6 within the annual report are safe custody fees payable to JPMorgan Chase Bank, N.A. as custodian of the Company amounting to £17,000 (2017: £13,000) of which £3,000 (2017: £3,000) was outstanding at the year end.

The Manager carries out some of its dealing transactions through group subsidiaries. These transactions are carried out at arms' length. The commission payable to JPMorgan Securities for the year by the Company was £nil (2017: £nil) of which £nil (2017: £nil) was outstanding in Company's financial statements at the year end.

Handling charges payable on dealing transactions undertaken by overseas sub custodians on behalf of the Company amounted to £1,000 (2017: £1,000) during the year, of which £1,000 (2017: £nil) was outstanding at the year end.

During the year the Company held cash in the JPMorgan US Dollar Liquidity Fund. At 30th September 2018, the holding in JPMorgan US Dollar Liquidity Fund was valued at £nil (2017: £11,180,000). During the year, the Company made purchases in this fund amounting to £nil (2017: £8,245,000) and sales on this fund amounting to £11,464,000 (2017: £821,000). Income receivable from this fund amounted to £150,000 (2017: £43,000) of which £nil (2017: £nil) was outstanding at the year end. JPMorgan earns no management fee on this fund.

The Company also holds cash in the JPMorgan Sterling Liquidity Fund. At 30th September 2018, the holding in JPMorgan Sterling Liquidity Fund was valued at £2,000,000 (2017: £nil). During the year, the Company made purchases in this fund amounting to £5,000,000 (2017: £nil) and sales on this fund amounting to £3,000,000 (2017: £nil). Income receivable from this fund amounted to £4,000 (2017: £nil) of which £1,000 (2017: £nil) was outstanding at the year end. JPMorgan earns no management fee on this fund.

At the year end, the Company held bank balances of £405,000 with JPMorgan Chase Bank, N.A. (2017: £1,055,000). A net amount of interest of £4,000 (2017: £1,000) was receivable by the Company during the year, of which £nil (2017: £nil) was outstanding at the year end.

Details of the Directors' shareholdings and the remuneration payable to Directors are given in the Directors' Remuneration Report within the annual report.

STATEMENT of directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the financial statements in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. Under company law the Directors must not approve the accounts unless they are satisfied that, taken as a whole, the annual report and accounts provide the information necessary for shareholders to assess the Company's performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. In order to provide these confirmations, and in preparing these financial statements, the Directors must be satisfied that, taken as a whole, the annual report and accounts are fair, balanced and understandable; and the Directors are required to:

•   select suitable accounting policies and then apply them consistently;

•   make judgements and accounting estimates that are reasonable and prudent;

•   state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and

•   prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;

and the Directors confirm that they have done so.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The accounts are published on the www.jpmindian.co.uk website, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditors accept no responsibility for any changes that have occurred to the Annual Report since they were initially presented on the website. The Annual Report is prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directors' Report and Directors' Remuneration Report that comply with that law and those regulations.

Each of the Directors, whose names and functions are listed in the Directors' Report, confirms that, to the best of his or her knowledge the financial statements, which have been prepared in accordance with IFRS and applicable law, give a true and fair view of the assets, liabilities, financial position and return or loss of the Company.

The Board confirms that it is satisfied that the annual report and financial statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the position and performance, business model and strategy of the Company.

For and on behalf of the Board
Richard Burns
Chairman

21st December 2018

Statement of Comprehensive income

Following an amendment to International Financial Reporting Standard 10 ('IFRS 10'), the Company is no longer permitted to consolidate its subsidiary (see note 2(c) in the annual report for details). The financial statements and accompanying notes 1 to 21 in the annual report presented in this section are 'Company-only' financial statements with the subsidiary shown as an investment held at fair value through profit or loss in the Statement of Financial Position.

To allow shareholders to compare the Company's performance and financial position with historically published figures which were prepared on a consolidated basis, the Group's Statement of Comprehensive Income, the Group's Statement of Financial Position and reconciliations between the statutory 'Company-only' financial statements and the Group figures that would have been published prior to the change to IFRS 10 are disclosed in note 22 within the annual report.

For the year ended 30th September 2018

	2018			2017
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains from investments held at fair value through profit or loss	-	(64,537)	(64,537)	-	70,114	70,114
Net foreign currency gains/(losses)	-	216	216	-	(239)	(239)
Income from investments	256	-	256	475	-	475
Interest receivable and similar income	158	-	158	44	-	44
Total income/(loss)	414	(64,321)	(63,907)	519	69,875	70,394
Management fee	(145)	-	(145)	(177)	-	(177)
Other administrative expenses	(682)	-	(682)	(734)	(22)	(756)
(Loss)/profit before finance costs and taxation	(413)	(64,321)	(64,734)	(392)	69,853	69,461
Finance costs	(65)	-	(65)	-	-	-
(Loss)/profit before taxation	(478)	(64,321)	(64,799)	(392)	69,853	69,461
Taxation	-	-	-	-	-	-
Net (loss)/profit	(478)	(64,321)	(64,799)	(392)	69,853	69,461
(Loss)/earnings per share	(0.45)p	(61.24)p	(61.69)p	(0.37)p	66.34p	65.97p

statement of changes in equity

For the year ended 30th September 2018

	Called up			Exercised	Capital
	share	Share	Other	warrant	redemption	Capital	Revenue
	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2016	31,404	97,316	41,929	5,886	6,362	610,605	(22,764)	770,738
Repurchase of shares into Treasury	-	-	-	-	-	(197)	-	(197)
Profit/(loss) for the year	-	-	-	-	-	69,853	(392)	69,461
At 30th September 2017	31,404	97,316	41,929	5,886	6,362	680,261	(23,156)	840,002
Repurchase of shares into Treasury	-	-	-	-	-	(5,058)	-	(5,058)
Loss for the year	-	-	-	-	-	(64,321)	(478)	(64,799)
At 30th September 2018	31,404	97,316	41,929	5,886	6,362	610,882	(23,634)	770,145

statement of financial position

At 30th September 2018

	2018	2017
	£'000	£'000
Non current assets
Investments held at fair value through profit or loss	8,362	4,043
Investments in subsidiary held at fair value through profit or loss	759,474	823,823
	767,836	827,866
Current assets
Other receivables	62	51
Cash and cash equivalents	2,405	12,235
	2,467	12,286
Current liabilities
Other payables	(158)	(150)
Net current assets	2,309	12,136
Total assets less current liabilities	770,145	840,002
Net assets	770,145	840,002
Amounts attributable to shareholders
Called up share capital	31,404	31,404
Share premium	97,316	97,316
Other reserve	41,929	41,929
Exercised warrant reserve	5,886	5,886
Capital redemption reserve	6,362	6,362
Capital reserves	610,882	680,261
Revenue reserve	(23,634)	(23,156)
Total shareholders' funds	770,145	840,002
Net asset value per share	736.5p	797.8p

statement of cash flows

For the year ended 30th September 2018

	2018	2017
	£'000	£'000
Operating activities
(Loss)/profit before taxation	(64,799)	69,461
Deduct dividends received	(256)	(475)
Deduct interest received	(158)	(44)
Add interest paid	65	-
Add losses/(deduct gains) on investments held at fair value through profit or loss	64,537	(70,114)
Increase in prepayments, VAT and other receivables	(19)	(5)
(Decrease)/increase in other payables	(27)	51
Net cash outflow from operating activities before interest and taxation	(657)	(1,126)
Interest paid	(30)	-
Dividends received	256	475
Interest received	166	44
Net cash outflow from operating activities	(265)	(607)
Investing activities
Purchases of investments held at fair value through profit or loss	(4,507)	-
Sales of investments held at fair value through profit or loss	-	8,892
Net cash (outflow)/inflow from investing activities	(4,507)	8,892
Financing activities
Repurchase of shares into Treasury	(5,058)	(197)
Net cash outflow from financing activities	(5,058)	(197)
(Decrease)/increase in cash and cash equivalents	(9,830)	8,088
Cash and cash equivalents at the start of the year	12,235	4,147
Cash and cash equivalents at the end of the year	2,405	12,235

Notes to the financial statements

For the year ended 30th September 2018

1.     Basis of Preparation

        Basis of accounting

The Company's financial statements have been prepared in accordance with the Companies Act 2006 and International Financial Reporting Standards ('IFRS'), which comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), the International Accounting Standards and Standing Interpretations Committee and interpretations approved by the International Accounting Standards Committee ('IASC') that remain in effect and to the extent that they have been adopted by the European Union.

The financial statements have been prepared on the going concern basis. The disclosures on going concern in the Directors' Report on page 30 of the annual report form part of these financial statements. The principal accounting policies adopted are set out in note 2 of the annual report. Where presentational guidance set out in the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies ('AIC') in November 2014, and updated in February 2018 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

The Company's share capital is denominated in sterling and this is the currency in which its shareholders operate and expenses are generally paid. The Directors have therefore determined the functional currency to be sterling.

2.     (Loss)/earnings per share

		2018	2017
		£'000	£'000
	(Loss)/earnings per share is based on the following:
	Revenue loss	(478)	(392)
	Capital (loss)/profit	(64,321)	69,853
	Total (loss)/profit	(64,799)	69,461
	Weighted average number of shares in issue	105,034,167	105,288,645
	Revenue loss per share	(0.45)p	(0.37)p
	Capital (loss)/earnings per share	(61.24)p	66.34p
	Total (loss)/earnings per share	(61.69)p	65.97p

3.     Net asset value per share

		2018	2017
	Net assets (£'000)	770,145	840,002
	Number of shares in issue excluding shares held in Treasury	104,574,940	105,287,615
	Net asset value per share	736.5p	797.8p

The Company will only re-issue shares held in Treasury at a premium and therefore these shares have no dilutive potential.

4.     Status of results announcement

2017 Financial Information

The figures and financial information for 2017 are extracted from the Annual Report and Financial Statements for the year ended 30th September 2017 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements include the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2018 Financial Information

The figures and financial information for 2018 are extracted from the published Annual Report and Accounts for the year ended 30th September 2018 and do not constitute the statutory accounts for that year. The Annual Report and Accounts include the Report of the Independent Auditors which is unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Register of Companies in due course.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement

JPMORGAN FUNDS LIMITED

ENDS

A copy of the annual report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

The annual report will shortly be available on the Company's website at www.jpmindian.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

JPMORGAN FUNDS LIMITED

 

END

 

 

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